Why domain buyers should do simple math before making a domain name offer

I’ve written a number of posts about finding and buying domains, how to lease domains, why domains cost so much, and the new domain name extensions versus .com domains, to name a few.

No matter what I’ve written about in the past, present, or future, there will always be domain buyers, whether end-user customers or domain investors, who send in a lowball offer or counter with an offer that’s not worth the time to entertain.

Although I choose to respond, I’ve noticed domain buyers that are business owners, those who use their business address to inquire about the price of a domain, tend to undervalue domain pricing when attempting to purchase a domain I own. Most of these business owners are offended when they inquire about a domain and I respond with 5 or 6-figure values.  Most simply say, “No thanks, I’ll register a different domain name.”

I’m met with terse comments and responses that I wouldn’t dare mention or even say to the face of a person that I so desperately want to buy something from. Let’s just say that most comments are in the neighborhood of “you’ve lost your mind” or “you’re the scum of capitalism”.

Personally, I don’t mind the comments. After all, everyone is entitled to their opinion in expressing the first amendment to some extent.

Regardless of the inquiry and responses that follow, I make every effort to break down and explain my domain pricing strategy in great detail for each business owner to understand as it relates to their respective industry. Here’s why…

Too many times, I see business owners viewing and valuing premium .com domains in their respective industries as nothing more than the cost of today’s latte. They want to pay $5 or $10 a year but expect customers and revenues to surge much like Niagra Falls.

And here’s a cold fact: this type of thinking is not reality. Maybe it was during the mid-to-late 90s, but it’s nearly 20 years later and times have definitely changed as everything has been drastically inflated in price.

That said, I want to share with you how I price domain names in hopes that should you buy a domain of mine, or anywhere and anyone else, then you’ll approach the domain inquiry with serious numbers and with a reasonable offer.

Do the math on what it cost you to start and sustain a business

Let me just say that a one-time fee you pay for a domain is not even a drop in the bucket or budget for all the costs you’ll incur to start and sustain your business.

Most business owners seeking to claim ownership of a prized .com domain throw logic out the window. Buying such a domain becomes a dumpster dive or thrift shopping event where the expectation is that everything is of the highest quality and material but at bargain-basement pricing.

One of the first things I always do with business owners in search of purchasing a domain I own is to get them to do the math behind what it costs them on an annual basis to operate their business.

Why domain buyers should jump at the opportunity to purchase a 4 or 5-figure domain name

For example, we don’t have to do much math beyond what it costs to lease a building for a business as opposed to paying a one-time fee of a small portion of the business lease to own a larger share of your market.

See, a typical brick-and-mortar business will lease a business space and without batting one eye pay $,$$$ per month easily. And this brick-and-mortar location is typically limited in terms of foot traffic and pales in comparison to the global traffic that a domain name can provide their business 24/7/365.

Yet business owners are quick to complain about paying a one-time fee of $$,$$$ to own more share of a market than their brick-and-mortar could ever bring them in one or more lifetimes.

Again, they are willing to pay $$,$$$ consistently over years versus a one-time $$,$$$, and $ for each additional year they own the domain.

My point is that I could easily respond to domain inquiries to said business owners with a “you pay me $$,$$$ for each year you own the domain.” It is an option, but just downright shrewd if you ask me, and something I’m not willing to do long term.

Again, comparing the cost of leasing a building to buying an aftermarket domain is only scratching the surface when considering the price you pay for a domain name.

In the end, I look at how I price domains like this: always remember that a little money has to be left on the table for the next guy, no matter who owns the domain name.

Why domain buyers are met with domain sticker shock for aftermarket domains

Depending on the domain name and offer made by the person inquiring, I also will provide them with a simple cost-per-lead breakdown of their industry.

Because you can go to GoDaddy.com, 1And1.com, Web.com, NetworkSolutions.com, and many more others offering domain names for sale, business owners and those inquiring about purchasing a registered domain from its owner are blinded by what it costs to purchase a non-value-add domain.

Anyone can purchase a domain, hang out their business shingle and launch a web presence just like anyone can lease or purchase land or space to build a brick and mortar difference. What makes the difference in whether or not the business is successful is the cost to acquire customers.

Think about it for a minute. When you set your business up in the wrong location, the business suffers to the point of failure, or you have marginal success while spending exponentially in marketing to make up for foot traffic which a prime location would automatically provide on its own.

The same can be said for domain names, and the beauty of domain names is it takes you less time and have a lower barrier of entry when comparing the costs of brick and mortar in its entirety.

Determining domain name pricing based on cost-per-lead math

For instance, I own a domain name and was recently approached by a drip irrigation company owner. I won’t give the exacts of the domain but it’s one that I’ve owned for 2 years, and it’s becoming popular due to cities suffering from severe drought and having to comply with new water restrictions and regulations.

That said, I responded to the buyer’s $50 offer with a $5,000 offer whereby I was met with a “that is too expensive for just a domain name only” response. Then I decided to reply with simple business logic and rough numbers, knowing the buyer may not budge one bit on their position.

A typical irrigation system on average is $2,500, some are more or less in price. My assumption is that a typical irrigation company spends nearly 7 months out of a year installing new systems (not accounting for repair service calls or general services) which is approximately 40 weeks, give or take a few weeks.

Developing this specific domain into a full-fledged website that ranks well in search engines, if at the minimum you land and close one average deal per week during those 40 weeks, that is nearly $100,000 in annual sales for one year based on one converted lead per week.

If I did a percentage of sales for sending you leads for a fully developed and ranked website, the going rate for each lead is 5%. Therefore, I arrive at my asking price of a one-time $5,000 for the domain name.

Step-by-step domain pricing strategy

See math below for a step-by-step domain pricing strategy:

$2500 per lead X 40 weeks (1 per week @ minimum) = $100,000 annual sales

$100K annual sales X 5% referral fee = $5,000 one-time domain investment

Now keep in mind that my asking price is only based on 1 year of sales and not multiple years as would a typical business be sold for a revenue multiplier for multiple years in excess.

So again, is a one-time domain fee of $5,000 too much to ask for when your business could convert more than the average 1 lead per week?